Design Contracts Imposing Duties Beyond Ordinary Care Create Extraordinary Risk

TexasBarToday_TopTen_Badge_VectorGraphicDesign professionals are under assault by those in the construction industry determined to contractually alter the standard of care that applies to these design professionals’ work.

Every design professional and construction contract comes with its own set of risks. But design professionals that agree to heighten the standard of care that applies to their work not only subject themselves to extraordinary risks, but also jeopardize their available insurance coverage when mistakes are made.

In ancient times, the standard of care for builders was to do exactly what the king, pharaoh, or ruler ordered them to do. If they failed to adhere to those exacting standards, severe consequences, including execution, could follow. Fortunately, the legal standard of care today is not quite that strict.

Today, most states define the standard of care for design professionals as a duty to use ordinary care.

The classic statement of the design professional’s standardContract Shock of practice is found in Coombs v. Beede, 89 Me. 187, 36 A. 104 (1896). In Coombs, a client won a trial court judgment based solely on what the client and architect discussed verbally regarding price and design. The Supreme Judicial Court overturned the ruling, holding:

“The responsibility resting on an architect is essentially the same as that which rests upon the lawyer to his client, or upon the physician to his patient, or which rests upon any one to another where such person pretends to possess some skill and ability in some special employment, and offers his services to the public on account of his fitness to act in the line of business for which he may be employed. The undertaking of an architect implies that he possesses skill and ability, including taste, sufficient to enable him to perform the required services at least ordinarily and reasonably well; and that he will exercise and apply, in the given case, his skill and ability, his judgment and taste, reasonably and without neglect. But the undertaking does not imply or warrant a satisfactory result. It will be enough that any failure shall not be by the fault of the architect. There is no implied promise that miscalculations may not occur. An error of judgment is not necessarily evidence of a want of skill or care, for mistakes and miscalculations are incident to all the business of life. Id at . 36 A. at 104-05.

Section 2.2 of American Institute of Architect’s (AIA) B101, Standard Form of Agreement between Owner and Architect (2007), incorporates this classic standard.

“The Architect shall perform its services consistent with the professional skill and care ordinarily provided by architects practicing in the same or similar locality under the same or similar circumstances. The Architect shall perform its services as expeditiously as is consistent with such professional skill and care and the orderly progress of the Project.”

 The Engineers Joint Contract Documents Committee (EJCDC) E-500, Paragraph 6.01.A, Agreement between Owner and Engineer for Professional Services similarly defines the standard of care for engineers.

“The Standard of Care for all professional engineering and related services performed or furnished by Engineer under this Agreement will be the care and skill ordinarily used by members of the subject profession practicing under similar circumstances at the same time and in the same locality.  Engineer makes no warranties, express or implied, under this Agreement or otherwise, in connection with any services performed or furnished by Engineer.”

Other commonly used standardized form contracts available from ConsensusDOCS do not include a definition of the standard of care applicable to architectural and engineering services. The ConsensusDOCS drafters decided it was better for design professionals to be held to a standard imposed on them by their own profession (i.e., one imposed by the standard a court would endorse) rather than one defined by the ConsensusDOCS.

There are significant differences between AIA, EJCDC, and ConsensusDOCS forms, but regardless of what forms used, every industry organization wisely recommends that the agreements’ references to the professional’s standard of care should not be modified.

The Association of General Contractors (AGC) for example cautions that adding language that would hold a design professional to a standard of care above that which is customary and normal for design professionals in the same time and location also might result in the unintended consequence of voiding professional liability coverage available to the designer

Despite this widely shared warning, it unfortunately remains common place for owners to demand that design professionals sign contracts committing them to a significantly higher level of professional services than the common law standard of ordinary care.

Design professional must be on the lookout for an owner and other parties to insert phrases into a contract such as “highest level of care,” “with no material errors,” or “trust and confidence.”

The problem arises because these phrases like “highest level of care” are not well-defined by code, case law, or by peers working on similar projects. The design professional likely may not discovery how a court would define such a contract term until after another design professional testifies in litigation about the latest and greatest, cutting-edge technology being used by other design professionals on the other side of the country.

Other terms like “trust and confidence” can imply a special relationship between the design professional and the client, and thus a severely heightened standard of care.

Design professionals also should avoid agreeing to contract terms that commit them to comply with all regulations, codes, ordinances, and laws, and assume liability for the owner’s damages resulting from a failure to comply.

Such terms may seem reasonable at first glance but they create the potential for an absolute warranty and guarantee that the services provided comply with regulations, codes, ordinances, and laws that the design professional erroneously believed did not apply.

Ironically, often the owners insisting on these heightened standards of care are those working on the tightest budgets, and therefore expecting Cadillac service at a discount price.

Additionally, experience reveals that the owners demanding these contractually heightened standards of care greater than the industry norms frequently turn out to be the most difficult and demanding clients on every aspect of the project.

An owner demanding that the design professional execute an onerous contract should always be a red flag the project may not be worth the fee or hassle.

If a demanding owner insists on the use of these terms, the design professional may be able to skillfully negotiate additional language that mitigates the risk or eliminates it entirely. For example, a design professional may consider including limiting language elsewhere in the contract such as:

“No terms contained this contract are intended to create a guarantee, warranty, or a strict liability standard. The parties agree that the design professional shall only be required to not perform its professional services negligently, or as a result of willful or reckless misconduct. Nothing in this Agreement shall be construed to establish a fiduciary relationship between the parties.”

As discussed above, contractually raising the standard of care above the ordinary care standard also can jeopardize insurance coverage. Most professional liability insurance policies exclude coverage for acts other than ordinary negligence. The insurer will perceive this as a voluntary assumption of risk for which the design professional would not otherwise be responsible, and therefore uninsurable.

For example, the design professional may defeat a claim for negligence but lose on a breach of contract count based on other contract language creating a higher standard of care. As a result, the design professional’s professional liability insurance policy may not cover the loss because it may be excluded by either the “contractual liability” or “warranty” exclusions of the policy.

Fortunately, design professionals can eliminate many of these situations by taking a few simple steps:

  1. Be diligent. Every design professional should implement a strong internal contract review process. Additionally, many design professionals surprisingly remain unaware that many of the best professional liability insurance policies provide for contract review services as part of the benefits available in the policies.
  2. Never sign a contract that alters the standard of care from the common law or industry standard language without first consulting an experienced construction law attorney to fully understand the terms used and potential risk assumed.
  3. Consult with an insurance broker that specializes in the field to make sure that every risk assumed by the design professional in the contract is insured if it is insurable.
  4. Negotiate limiting or mitigating language to redefine the terms used in the contract to mean ordinary care and to hopefully eliminate any unintended standards of care, guarantees, or warranties

Construction contracts are a minefield of potential liability for the unwary or inexperienced design professional. A strong contract review team is the first and best line of defense.

But every design professional also must be prepared to walk away from a deal where the owner insists on contract terms that increase the standards of care beyond an acceptable standard, or be prepared that such onerous contracts may likely result in no insurance coverage when something inevitable goes wrong.

Tim Soefje - 04--09-18Timothy B. Soefje is the Managing Member and head of the professional liability and construction defect group at the boutique firm of Seltzer Chadwick Soefje & Ladik, PLLC based in Dallas, Texas. He is admitted in Texas and Oklahoma. For regular information about professional liability matters, follow him on Twitter at @TimSoefje and search #ProfessionalLiability. For more information, visit us at www.realclearcounsel.com or contact him  at tsoefje@realclearcounsel.com.

sbaldwinSamuel P. Baldwin is Of Counsel at the boutique firm of Seltzer Chadwick Soefje & Ladik, PLLC based in Dallas, Texas. He is admitted in Texas. His practice focuses on the defense of professional liability, construction defect, and complex commercial litigation claims. For regular information about professional liability matters, follow him on Twitter at @Sam_Baldwin5 and search #ProfessionalLiability. For more information, visit us at www.realclearcounsel.com or contact him at sbaldwin@realclearcounsel.com.

Recent Title IX Case Highlights Social Media Remains Minefield Of Liability

Social media continues to be a minefield of professional liability as more and more attorneys come to the defense of their clients on social media without a full understanding of the risks involved.

We have blogged before on the perils of social media, but a recent Title IX case provides an excellent example of what can happen when a well-intention attorney, hoping to protect his client’s interest, posts online to set the record straight only to watch the social media posts go viral with vicious attacks on his client and his own professionalism.

mobile-phone-1917737_1920

The case involved a Title IX complaint between  two students at Texas A&M University. The university came under fire after the female student tweeted out a screenshot of an email from the Title IX Coordinator that informed her the university was going to reinstate to both the swim team and the university the male student she accused of sexually assaulting her.

Within hours, the male student’s lawyer took to Facebook with the intent to set the record straight from his client’s perspective, including disclosure of details about the case uncovered during the investigation that previously had not been made widely public.

The attorney’s social media posts exploded nationally into a focal point for the Title IX #MeToo movement.

The attorney immediately came under fire about whether he disclosed confidential information in the Title IX proceeding, and whether his client granted him permission to engage in the social media posts and disclose the facts of the underlying investigations.

In the latest twist to the case, the attorney on behalf of his client last month filed a Title IX discrimination lawsuit against Texas A&M University for gender bias. Whether the attorney’s social media posts will positively or negatively affect the outcome of that lawsuit remains to be seen.

An attorney who violates the attorney-client privilege or discloses confidential information about the client can receive in sever sanctions, including suspension or even disbarment.

In In Re Peshek, an Illinois Supreme Court case decided in 2010, the court suspended an assistant public defender from practice for 60 days for blogging about clients on his social media page and implying in one post that a client may have committed perjury.

Conversely, in 2013, the Virginia Supreme Court held in Hunter v. Virginia State Bar that confidentiality obligations have limits when weighed against First Amendment constitutional protections owed to a lawyer.

In Hunter, the court held that even though the blog posts were considered commercial speech, the Virginia State Bar could not prohibit the lawyer from posting non-privileged information about clients and former clients without the clients’ consent where:

  • the information related to closed cases; and
  • the information was publicly available from court records and, therefore, the lawyer was free, like any other citizen, to disclose what actually transpired in the courtroom.

The principle of confidentiality is set out in the legal ethics rules. ABA Model Rule 1.6 states:

“A fundamental principle in the client-lawyer relationship is that, in the absence of the client’s informed consent, the lawyer must not reveal information relating to the representation. . . This contributes to the trust that is the hallmark of the client-lawyer relationship.”

Any violation of these rules will impose sanctions on the attorney involved.

(a)  A lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent, the disclosure is impliedly authorized to carry out the representation or the disclosure is permitted by paragraph (b).

(b)  A lawyer may reveal information relating to the representation of a client to the extent the lawyer reasonably believes necessary:

(1)  to prevent reasonably certain death or substantial bodily harm;

(2)  to prevent the client from committing a crime or fraud that is reasonably certain to result in substantial injury to the financial interests or property of another and in furtherance of which the client has used or is using the lawyer’s services;

(3)  to prevent, mitigate or rectify substantial injury to the financial interests or property of another that is reasonably certain to result or has resulted from the client’s commission of a crime or fraud in furtherance of which the client has used the lawyer’s services;

(4) to secure legal advice about the lawyer’s compliance with these Rules;

(5) to establish a claim or defense on behalf of the lawyer in a controversy between the lawyer and the client, to establish a defense to a criminal charge or civil claim against the lawyer based upon conduct in which the client was involved, or to respond to allegations in any proceeding concerning the lawyer’s representation of the client;

(6)  to comply with other law or a court order; or

(7)  to detect and resolve conflicts of interest arising from the lawyer’s change of employment or from changes in the composition or ownership of a firm, but only if the revealed information would not compromise the attorney-client privilege or otherwise prejudice the client.

(c)  A lawyer shall make reasonable efforts to prevent the inadvertent or unauthorized disclosure of, or unauthorized access to, information relating to the representation of a client.

On the other hand, the attorney-client privilege, sometimes referred to as the testimonial privilege, is a concept from the law of evidence and is present in the common law or statutes of the fifty states.  The client, acting through the lawyer, may claim the privilege.

As stated in Model Rule 1.6(c)(3): “The attorney-client privilege and work-product doctrine apply in judicial and other proceedings in which a lawyer may be called as a witness or otherwise required to produce evidence concerning a client.”

The attorney-client privilege protects the communications between the client and lawyer and only pertains to information shared during the attorney-client working relationship. Therefore, all the information shared between the attorney and the client does not necessarily get placed under attorney-client privilege even if it has been told to the lawyer.

By contrast, the ethical duty of client-lawyer confidentiality is extensive and finite. The ethical duty of an attorney not only applies to matters communicated in confidence by the client but also to all information relating to the situation.

In other words, even though a court determines that certain information is not covered by the attorney-client privilege, it still may be covered by the lawyer’s ethical duty of confidentiality. According to Rule 1.6 (c)(20), “confidential information is to remain confidential throughout the representation, and thereafter, even after the death of the client”.

Along with the basic principle of maintaining the privacy of client information, “a key precept of ethically maintaining confidentiality is that the information not be used to the detriment of the client, but rather only to advance the client’s interests.  Even information gained about the client after the representation has concluded is to be kept confidential.”

Once information has become generally known, however, not just known by some few others, it loses the protection of lawyer confidentiality.

The duty of confidentiality continues after the client-lawyer relationship has terminated. See Rule 1.9(c)(2). See Rule 1.9(c)(1) for the prohibition against using such information to the disadvantage of the former client.

Too many attorneys continue to wade into the world of social media with little experience or understanding of how their best intentions can suddenly and unexpectedly explode virally, harming their client’s interest and placing their own licenses and legal future in jeopardy.

No lawyer should ever post on social media about their client or client’s case without first obtaining written permission from the client to do so. Every attorney also should generally not proceed until setting out in writing to the client a clear strategy why social media is a recommended strategy. A failure to do so could unexpectedly subject to the attorney to serious disciplinary consequences.

Tim Soefje - 04--09-18Timothy B. Soefje is the Managing Member and head of the professional liability and construction defect group at the boutique firm of Seltzer Chadwick Soefje & Ladik, PLLC based in Dallas, Texas. He is admitted in Texas and Oklahoma. For regular information about professional liability matters, follow him on Twitter at @TimSoefje and search #ProfessionalLiability. For more information, visit us at www.realclearcounsel.com or contact him at tsoefje@realclearcounsel.com.

Autumn Keefer - 07-13-18Autumn Keefer is a law clerk with the boutique firm of Seltzer Chadwick Soefje & Ladik, PLLC based in Dallas, Texas. She will enroll at Southern Methodist University School of Law in the fall. Ms. Keefer holds a Masters Of Legal Studies from Texas State University.  For more information, visit us at www.realclearcounsel.com or contact her at akeefer@realclearcounsel.com.

Rapidly Developing Law On Attorney’s Fees Increases Risk Of Legal Malpractice

The law surrounding attorney’s fees continues to change rapidly, posing a serious risk of legal malpractice for any attorney who fails to keep abreast of this developing area.

For example, in Texas, any portion of work performed on a case must be segregated in claims where attorney’s fees are recoverable from the work on claims where attorney’s fees are not recoverable.

The Texas Supreme Court first set forth the basic standard of care for segregation in 2006 in Tony Gullo Motors v. Chapa. A reviewing court can reverse the award and remand the case for new trial on attorney’s fees if fees are not segregated as required by Chapa.

shutterstock_331053875Other state courts also have emphasized the importance of segregation of unrecoverable from recoverable fees. In Seeley v. Seymour and Johnson v. Grayson, two California courts reversed an attorney’s fee award and remanded a case, holding the plaintiff failed to submit billing statements to distinguish between prosecution of a slander of title claim and services performed to remove cloud on title because it was possible to separate the claims and the issues were not too closely related.

Attorneys also must be careful to timely disclose in discovery how fees are segregated to ensure evidence is admissible at trial. The Federal Rule of Civil Procedure 37(c) states a party cannot use information to supply evidence on motion, at a hearing, or at trial, if the party failed to provide that information. Similarly, Texas Rule of Civil Procedure 193.6 provides that a party who fails to make, amend, or supplement a discovery response in a timely manner may not introduce such material

An attorney must segregate his time unless the legal services performed are so intertwined that they advance both a recoverable and unrecoverable claim. As recent at October 2017, the United States District Court for the Southern District of Texas in Cypress Engine Accessories v. HDMS affirmed the requirement to strictly comply with the standard set out in Chapa. The Court held that HDMS failed to segregate recoverable fees earned in defending a DTPA claim from unrecoverable fees earned in defending tort claims.

HDMS’s claim for attorneys’ fees was based on two theories: (1) Section 38.001(8) of the Tex.Civ.Prac. & Remedies Code provides for recovery of reasonable attorneys’ fees for a breach of contract claim; and (2) Cypress Engine brought its DTPA claim in bad faith, which entitles HDMS to fees and costs under Section 17.50(c) of the Tex. Bus. & Com. Code.

In response, Cypress Engine argued that: (1) HDMS failed to plead its attorney’s fees as special damages; (2) Texas law does not support recovering attorney’s fees as actual damages, not only as damages incidental to actual damages, which HDMS cannot prove; and (3) Section 38.001(8) does not apply to Cypress Engine because it is a limited liability corporation.

The Court held that a claimant must segregate recoverable fees from unrecoverable fees and that the facts in Cypress Engine were not so sufficiently “intertwined” as to make the tort fees recoverable. The court held that regardless of how nominal, an attorney must segregate unrecoverable fees that do not advance a recoverable claim for attorney’s fees, and a failure to do so, subject the award of attorney’s fees to reversal.

Several other states impose similar requirements. For example, Illinois has set out similar rules for disclosure and segregation of attorney fees in discovery. Article II, Rule 201(b) of the Illinois Supreme Court Rules states that full disclosures are required for any matter relevant to the case and Illinois Rule 219(c) provides that failure to comply with orders or rules of discovery could result in varying punishments from a stay of proceedings to default judgment.

So how does an attorney comply with the standard of care set forth in Chapa? In general, attorneys are not required to keep and produce separate time and billing records for separate claims, but doing so may well be the best practice until the courts further clarify the outer limits of the requirement.

Opinion testimony is a commonly used method to prove the amount of recoverable attorney’s fees. Testimony may come from disinterested attorneys or from the attorney whose fees are in question. Generally, the testimony of an attorney whose fees are in question merely raises a fact issue to be determined by the jury. However, the testimony of an interested party may establish facts as a matter of law if the testimony is accurate, clear, and uncontroverted.

Any attorney preparing to present evidence of attorney’s fees at trial should be aware that a trial court may demand more than mere opinion testimony, however, including an ability by the party seeking to recover attorney’s fees to identify specific evidence in attorney billing records on which the party’s expert’s opinion is based.

The failure to object to the opposing side’s failure to segregate also can serve as the basis for a future legal negligence claim. Best practice requires an attorney to object at trial during the presentation of evidence on attorney’s fees, but an attorney at minimum must object to a party’s failure to segregate at the time the issue is submitted to the jury and include an appropriate jury charge.

Attorneys who do not ordinarily prosecute claims where attorney’s fees can be recovered also are sometimes surprised to learn some states now permit the “lodestar method” to calculate fees in ordinary breach of contract claims. A failure to permit the court to consider a “lodestar” can result in a significantly lower award of attorney’s fees.

The lodestar method has two steps. First, the court determines the reasonable hours worked and reasonable hourly rate for the work performed. Second, the court multiplies the hours worked by the hourly rate, which equals the base fee or lodestar. Next, the court is free to increase or decrease the loadstar if the court believes such adjustment is necessary.

As set out in detail in Cypress Engine Accessories v. HDMS, some attorneys also are surprised to learn that Texas courts that have fully analyzed Tex.Civ. Prac. & Rem. Code §38.001 have concluded the some states do not provide a right to recover attorney’s fees from a limited liability corporation or limited partnership despite years of trial court’s allowing such recovery. An attorney’s failure to object to the submission of attorney’s fees against an attorney’s limited liability corporation or limited partnership is clear legal malpractice.

Statistically, we’ve known for decades that attorneys who sue clients to recover their fees invite counterclaims for legal malpractice.

Now, a rapidly changing area of law as to how and when attorney’s fees can be recovered creates even more risk of exposure for lawyers that fail to properly comply with the standard of care to segregate attorney’s fees and that fail to properly object in discovery and at trial when attorney’s fees should be denied.

To subscribe to the Professional Liability Update, click HERE, provide your contact information, and receive notice of our updates. 

20170712_113656Timothy B. Soefje is the Managing Member and head of the professional liability section at the boutique firm of Seltzer │Chadwick │Soefje, PLLC based in Dallas, Texas. For regular information about professional liability matters, follow him on Twitter at @TimSoefje and search #ProfessionalLiability. For more information, visit us at www.realclearcounsel.com or contact him at tsoefje@realclearcounsel.com.

 

Nicole Ward Headshot - 10-31-17Nicole Ward graduated from the University of Oklahoma College of Law in May 2017.  Her practice focuses on labor and employment law, professional liability, construction defect litigation, corporate law, and bankruptcy. She previously interned in-house for the general counsel at a nationwide building materials supplier and for an Administrative Law Judge at the Equal Employment Opportunity Commission (EEOC). At OU, she was a member of the Order of Solicitors, and won the Best Brief Award at the 29th Annual Ruby R. Vale Interscholastic Corporate Moot Court Competition. She served as a member of the Organization for the Advancement of Women Lawyers and served as a CASA volunteer. Contact her at nward@realclearcounsel.com

 

#PLUSin30 – 2017 International Professional Liability Underwriters Society

20170712_113656Privileged that Professional Liability Underwriters Society (PLUS) asked me to participate in its #PLUSin30 series for the 2017 PLUS International Convention held in Atlanta, Georgia on October 31 to November 3, 2017.

Seltzer Chadwick Soefje, PLLC is proud to be actively involved with PLUS since our founding. As a firm, we’ve act as a Gold Sponsor of the PLUS Texas Chapter. Our partner Bob Chadwick served as PLUS Texas Chapter from 2005-2008, and as Co-Chair of the PLUS International Chapter Development Committee.

To subscribe to the Professional Liability Update, click HERE, provide your contact information, and receive notice of our updates. 

20170712_113656Timothy B. Soefje is the Managing Member and head of the professional liability section at the boutique firm of Seltzer │Chadwick │Soefje, PLLC based in Dallas, Texas. He is admitted in Texas and Oklahoma. For regular information about professional liability matters, follow him on Twitter at @TimSoefje and search #ProfessionalLiability. For more information, visit us at www.realclearcounsel.com or contact him at tsoefje@realclearcounsel.com.